BCSC reveals reasons for overturning IDA

(November 26, 2004) The B.C. Securities Commission has released its reasons for overturning the IDA decision in the case of Victoria stockbroker Carolann Steinhoff, erasing fines and penalties levied against her.

In an unusual decision, the BCSC reversed the IDA decision on Oct. 28, 2004, criticizing the IDA for having erred in law, overlooked material evidence, and relied on speculation as to facts not in evidence, in finding that Steinhoff engaged in unauthorized trading in its own previous April 2003 decision.

The regulator said that the IDA had denied Steinhoff the right to a fair hearing by excluding relevant evidence in her defence.

The conflict began in 1999, when Steinhoff claimed she became the victim of a smear campaign at the hands of her firm, ScotiaMcLeod. She had been one of the firm’s star brokers by serving a high-end clientele drawn largely from the medical community.

She alleged that the firm had discovered her intention to leave and set about discrediting her for fear of losing her book of business. She was suddenly the subject of numerous complaints of unauthorized trading. Scotia later admitted before the IDA that it had sent “incorrect” information to Steinhoff’s clients, which led to complaints against her.

Steinhoff found herself in front of another IDA panel, after she sued one of her accusers and a local business newspaper that reported the allegations against her. In the ensuing investigation, the IDA interviewed Steinhoff’s assistant, Marnie Williams, but refused to enter the transcript into evidence, despite Williams’ familiarity with the client in question. The IDA did enter into evidence the transcript of an interview with Nancy Murdoch, an assistant who did not deal with the client.

The IDA found that one of the initial 23 complaints against her seemed to have fallen through the cracks and implied that there could be more cases of abuse that it simply did not know about.

“We believe there is a high likelihood that from time to time Ms. Steinhoff operated her business in a discretionary manner because, despite her admirable work ethic, we doubt she could always effect as many transactions as she does and still respect specific IDA regulations regarding the execution of trade authorizations,” the IDA panel said in its finding. “Considering all the evidence, we are not persuaded that there is clear, cogent and convincing evidence that Ms. Steinhoff did not have approval for many of her trades. There are, however, two matters that trouble us greatly.”

Steinhoff was assessed fines totaling $5,000. The IDA requested the BCSC review the case and raise the penalties.

“The IDA panel erred in failing to direct that the transcript of Williams’ interview with IDA staff be entered into evidence, and in finding that Steinhoff did not have authority for the January 1999 trades,” read the decision of the BCSC. “Williams’ evidence was clearly relevant. Unlike Murdoch, who testified, Williams had direct contact with Conley. Her transcript was also disclosed to Steinhoff, and we can safely conclude that Steinhoff, being aware of its contents, would not have sought to have it admitted unless it was helpful to her case.

“The issue is one of procedural fairness. Procedural fairness was not met because the IDA panel failed to admit relevant evidence that was readily available. In failing to admit the evidence, it denied Steinhoff the right to a fair hearing.”

The regulator also said the IDA had held Steinhoff to an excessively high standard in her testimony.

“The evidence relied on by the IDA panel did not tip the balance of probabilities against Steinhoff,” the BCSC statement said. “This is particularly so given the IDA panel’s failure to draw the appropriate inference from the missing Williams evidence.”

The IDA had also ruled against Steinhoff on a matter of jurisdictional registration, after she was approved for every province but Ontario. The BCSC also overturned this ruling.

The commission said that Steinhoff and her employer took the steps necessary to ensure she was registered in all relevant jurisdictions, including Ontario. Other relevant circumstances included the IDA’s unexplained delay in processing Steinhoff’s registration application.

Steinhoff is currently a registered representative with Wellington West Capital Inc. in Victoria.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(11/26/04)

Steven Lamb